I was sitting there having a mind freeze on what to write and I looked over to my wife and asked her for a topic. She said, “gas.” Sitting there thinking that was out of left field, I pretended not to hear and said huh. Gas prices, Ahh gotcha!
Well if you haven’t noticed gas has been creeping up, it seems as though every time I drive past a gas station it is 10 cents higher than it was an hour ago. I read an article the other day that crude prices over $100 a barrel are going to be the new norm. There are over 160 different types of oil so they use the terminology of barrel to describe all these types. A barrel is approximately 42 gallons.
The basic law of supply and demand with respect to the gas situation is that there are more users of gas while supplies have remained relatively flat. As demand increases and supply remains unchanged, this results in a higher equilibrium price. The Organization of Petroleum Exporting Countries (OPEC) is a cartel comprised of 12 of the largest oil producing countries. OPEC has a large influence in the prices of oil throughout the world.
Oil is an important commodity that is traded in the markets today. The supply of oil is heavily regulated by the OPEC nations to maintain higher prices. Ultimately the gas that we use is a combination of the overall supply and demand of oil, coupled with the quality and ease of refining the oil into gasoline. Companies like Southwest Airlines have used fuel futures as a hedge against rising fuel prices. While this may not be practical for you or me, but if you own a company this may be an option to explore.
At any rate it looks like $3.90 and above gas prices are here to stay at least for the time being. Prices today may not be as high as they were in 2011 when the average price was $3.99 or July 2008 when the record was $4.11. Time to start looking at all of my expenses as the price of gas will put more and more pressure on my personal budget.
I don’t know how much gas is in your area, but it’s $4.39 in mine (AND that’s down from $4.40+). So I laugh at your $3.90 and above comment. I laugh (and cry… kind of). Oh, my fiance and I both have a 30+ mile commute, each way. So together we drive 130 miles a day. Gas prices can hurt!
@ Well Heeled – gas in our neck of the woods is about $4.15 now. The $3.90 is the US average. Wow 130 miles a day that is quite a bit, I hope you have fuel efficient cars! $3.90 in your shoes is like a steal!
You don’t want to know what we pay here in BC. When you you convert the per liter price to gallons, it is well over $5. I think our government adds a whole lot of tax to that.
It is pretty lame that the oil companies use the whole supply and demand excuse. They artificially control the amount of supply by stockpiling oil. It’s all about the demand. The oil companies know full well that people will keep buying their product no matter what the cost. They just have to gradually increase the prices over time to prevent a huge backlash.
@ Jeremy – That is insane!!! My $4.00 a gallon I shouldn’t complain about then!
Here in the U.S., the argument by most oil experts is that the reason gas prices are so high is because we failed to drill for oil in Alaska 30 years ago. Because of this failure, we are now reliant upon receiving our oil supply from the Middle East. Needless to say, this excuse doesn’t help us now. We’re still spending close to $4 in gas, and some of us are even past that. The price of gas is never going to recover, and that’s just my take on it.
@ Anthony – i like your take on it. It seems logical, and now we have to spend so much money on these wars to protect
the people of the middle eastour oil interests.I’m more skeptical, but my wife is a big believer in the set of theories broadly called “Peak Oil.” Basically says the world is at, or very near, the point where global oil production will reach its peak and start declining. If that happens, $4 gas may look pretty cheap.
With natural gas so inexpensive, relative to oil, you gotta think that fuel switching–oil to nat gas–where that’s fairly easily done will help keep oil prices from skyrocketing. But who knows, my record of predicting such things is abysmal.
With Russia charging around $17 per 1000 cubic feet while we can produce the same amount at $2.50, I wonder how long it’ll be before we start exporting natural gas. Part of the reason for our high[er] gas prices is that we’re exporting our refined petroleum products. I hope natural gas doesn’t meet the same fate.
@ Bryan – hmmm I never thought about the natural gas. I just pay National Grid when the bill comes and hope it is pretty level month to month. Good point. Thanks for the insightful comment.
@ Kurt- it sounds like your record and my record of predicting things are pretty similar. Maybe we can diversify our predictions to cover a broad base. Something has got to give, we cannot pay $6-7 a gallon, that will really put a squeeze on the economy.
I coach people on a daily basis and I get to see tons of people’s personal budgets. We budget $400/month for gas and I have coached a few people that budget $100 or less!
I know one thing is for certain: whenever my wife and I decide to buy a new house we’re moving much close to our works.
@ Jason – It looks like you and your wife must have a pretty big commute if you are putting that much aside. We set about 250 a month aside for fuel costs. I live less than 2 miles from work, but sometimes a drive at night is the only thing to get the kids to sleep! It would be nice to have a budget of less than a $100 but I just don’t see it feasible.
I think the high price is here to stay as well. At least until after the summer this year. We pay over $5.25 for a gallon of gas in my city, but that’s because everything is more expensive up here. Oh well, hopefully my energy stocks like CVX can use these high oil prices to increase their earnings.
@ Liquid – As much as I want to disagree, I think you are right high prices are here to stay!
I took a different approach to dealing with high gas prices – I bought shares of Chevron. If prices aren’t going down and they’re going to make a bunch of money off us, can’t I join in the fun?
@ My Money Design – Good strategy, I have always thought about buying other energy companies. Then I usually get mad at the profits they are raking in and never pursue it.
It’s time for Chevrolet Volt and his perks.
Or remember Germany in 70-80 th when driving was forbidden on Sundays.
The only option that we have is either to buy new car (fuel efficient) or modified to be suitable for natural gas. Or even better with biogas.. These options are cheaper for our survival